Brave New World

With all due deference to Aldous Huxley’s futuristic novel, it is not an exaggeration to suggest the North American automotive industry has been launched into a brave new world pertaining to fuel efficiency regulations.

While it makes sense to harmonize fuel efficiency regulations, it is going to present very real challenges to Canadian manufacturers and distributors as up until this point, the Canadian industry had agreed to adopt U.S. fuel economy regulations voluntarily.

A regulatory regime requires its own infrastructure, manpower and reporting mechanisms to be developed within both vehicle manufacturers and the government alike.

These regulations will govern the 2012-2016 model years and will result in a 40 per cent improvement in the fuel efficiency of the vehicle fleet, an increase to 35.5 mpg by 2016.

According to the U.S. Department of Transportation, these regulations will result in the conservation of 1.8 billion barrels of oil and a reduction of 960 megatonnes of GHG emissions over the lifetime of the vehicles regulated.

It was no April Fool’s ruse that Canada also announced its fuel efficiency standards on Apr. 1, given the federal government’s commitment exactly a year prior to work with the U.S. to align regulations.

From the perspective of vehicle manufacturers and distributors, this approach makes sense. The industry is essentially integrated on a North American basis and such an approach will also produce the most significant environmental benefit at the lowest cost for consumers.

That said, under U.S. law, the government had to pass a final rule for fuel efficiency for the 2011 model year last April, in order to provide the automakers with the required 18 months lead time to meet the new standard.

Given the mess the U.S. was in with respect to the fuel economy file last year, the U.S. choose to regulate fuel economy for both cars and trucks for only one year using the “attribute-based” or “foot print” approach. The approach essentially looks at the size of each model and sets out a requisite fuel economy standard accordingly.

Those standards set combined passenger car and light truck fuel economy at 27.3 mpg, up 8 per cent from 2009.

While Canada committed to harmonizing regulations, the government has taken a slightly different approach. Given that we have never regulated fuel economy, it made little sense to adopt a different approach to regulation for one year (2011). Especially when it was clear where the U.S. was headed in terms of regulating fuel economy that satisfied requirements of the NHTSA, the EPA and California.

Therefore, the proposed passenger automobile and light truck greenhouse gas emission regulations Canada released this past April are effectively a hybrid of what the U.S. announced for 2011 a year ago and what it has subsequently announced for the 2010 to 2016 model years.

But while the U.S. announced its final regulations, Canada merely outlined its proposed regulation, which is scheduled for actual publication in the Canada Gazette in mid-April.

Once it is published, Canadians will have 60 days to comment on the proposed regulation. Comments will be considered when the government publishes the final regulation.

We will be well into the summer at this point, and many 2011 model year vehicles will have been on the road for many months by the time the final regulation is past.

Unlike the U.S., there is no law in Canada requiring the government to provide a set amount of lead time to vehicle manufacturers to transition to the new regulations.

There is precedent under the Canadian Environmental Protection Act that would make the regulation effective only for the vehicles that were manufactured after the regulation comes into force.

This might seem obvious in that a manufacturer cannot be expected to build 2011 model year vehicles (which it can technically introduce to the market any time after January 1st, 2010) to a standard finalized at some point this summer.

Moreover, having the same fuel efficiency standards does not necessarily mean compliance in one country guarantees compliance in the other.

For instance, Canada generally has more snow and longer winters than much of the U.S. We tend to purchase proportionally more four-wheel drive vehicles that are generally less fuel-efficient than their two-wheel drive counterparts.

In order to comply with the new regulations, a manufacturer may have to plan to sell fewer four-wheel drive vehicles, despite the fact that many consumers may wish to purchase them.

There is a lot of issues that still need to be worked out as we move towards an North American fuel efficiency standard. It is a goal that continues to be worthy of pursuit and must be sorted if the industry is ultimately to meet its 2016 fuel efficiency targets.

David Adams is the president of the Association of International Automobile Manufacturers of Canada (AIAMC), representing 14 international automobile manufacturers with operations in Canada.